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Bargaining over Entry with a Compulsory License Deadline: Price Spillovers and Surplus Expansion

Listed author(s):
  • Eric W. Bond
  • Kamal Saggi

We analyze bargaining between a developing country (South) and a multinational firm over the local price of its patented product. We use an alternating offers bargaining game in which the South can resort to compulsory licensing (CL) if the two parties fail to reach agreement by a certain deadline. The presence of international price spillovers introduces two novel features into the standard bargaining problem: the surplus from entry prior to the CL deadline may be negative, and CL can yield higher surplus than entry. We establish conditions under which equilibrium may exhibit immediate entry, preemptive entry just prior to the CL deadline, or the occurrence of CL. The South necessarily gains from the threat of CL if the joint payoff under entry is higher relative to CL but can lose if it is lower.

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File URL: https://www.aeaweb.org/articles?id=10.1257/mic.20150031
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Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 9 (2017)
Issue (Month): 1 (February)
Pages: 31-62

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Handle: RePEc:aea:aejmic:v:9:y:2017:i:1:p:31-62
Note: DOI: 10.1257/mic.20150031
Contact details of provider: Web page: https://www.aeaweb.org/aej-micro
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  1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  2. Margaret K. Kyle, 2007. "Pharmaceutical Price Controls and Entry Strategies," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 88-99, February.
  3. Roy, Santanu & Saggi, Kamal, 2012. "Equilibrium parallel import policies and international market structure," Journal of International Economics, Elsevier, vol. 87(2), pages 262-276.
  4. Petra Moser & Alessandra Voena, 2012. "Compulsory Licensing: Evidence from the Trading with the Enemy Act," American Economic Review, American Economic Association, vol. 102(1), pages 396-427, February.
  5. Patricia M. Danzon & Y. Richard Wang & Liang Wang, 2005. "The impact of price regulation on the launch delay of new drugs-evidence from twenty-five major markets in the 1990s," Health Economics, John Wiley & Sons, Ltd., vol. 14(3), pages 269-292.
  6. Jean O. Lanjouw, 2005. "Patents, Price Controls and Access to New Drugs: How Policy Affects Global Market Entry," Working Papers 61, Center for Global Development.
  7. Keith E. Maskus, 2000. "Intellectual Property Rights in the Global Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 99, November.
  8. Ho, Cynthia, 2011. "Access to Medicine in the Global Economy: International Agreements on Patents and Related Rights," OUP Catalogue, Oxford University Press, number 9780195390124.
  9. Pinelopi Koujianou Goldberg, 2010. "Alfred Marshall Lecture Intellectual Property Rights Protection in Developing Countries: The Case of Pharmaceuticals," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 326-353, 04-05.
  10. Ganslandt, Mattias & Maskus, Keith E., 2004. "Parallel imports and the pricing of pharmaceutical products: evidence from the European Union," Journal of Health Economics, Elsevier, vol. 23(5), pages 1035-1057, September.
  11. Patricia M. Danzon & Andrew J. Epstein, 2008. "Effects of Regulation on Drug Launch and Pricing in Interdependent Markets," NBER Working Papers 14041, National Bureau of Economic Research, Inc.
  12. F. M. Scherer & Jayashree Watal, 2002. "Post-TRIPS Options for Access to Patented Medicines in Developing Nations," Journal of International Economic Law, Oxford University Press, vol. 5(4), pages 913-939, December.
  13. Pecorino, Paul, 2002. "Should the US allow prescription drug reimports from Canada?," Journal of Health Economics, Elsevier, vol. 21(4), pages 699-708, July.
  14. William Fuchs & Andrzej Skrzypacz, 2013. "Bargaining with Deadlines and Private Information," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 219-243, November.
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